• Maintain BUY recommendation. While we are positive about Mah Sing’s maiden venture into the condo market in Penang, we are lukewarm about its foray into China where it has plans for an 87-acre JV project. We are tweaking our 2009-10 EPS down by less than 1% while raising 2011 EPS by 4% as the Penang condo project should more than offset the dilution from the lower private placement price of RM1.55. Our target price, however, is cut from RM2.51 to RM2.34 as we widen the discount to our target market P/E of 15x from 10% to 20% to factor in the lower-than-expected placement price and emerging overseas risks. Nonetheless, we retain our BUY recommendation as valuations remain attractive and Mah Sing has a good track record when it comes to execution. Potential catalysts include 1) stronger-than-expected sales and 2) further newsflow on landbank acquisition.
• Maiden condo in Penang. Yesterday, Mah Sing announced the acquisition of 3.38 acres of freehold land along Pykett Avenue off Jalan Burma in Georgetown, Penang, for RM38.65m or RM263 psf. The acquisition cost appears fair considering that it makes up only 14% of the RM280m estimated GDV. Mah Sing will be developing upscale condos of 1,400-2,500 sq ft each and will be opening for registration of interest soon. It is looking to launch the project in 2H2010. This acquisition brings Mah Sing’s total purchases in 2009 to six, with a combined cost of RM323m and GDV of RM2.2bn.
• Maiden venture into China. Mah Sing has inked a letter of intent with the Wujin government to develop an 87-acre mixed development project in Wujin district in Changzhou, Jiangsu province. It will establish a 51:49 joint venture with DanLong Realty (Beijing) Co Ltd to develop the land. Initial investment in the JV company by the partners will total US$80m. GDV of the project is US$620m. The JV company also has an option for two plots of land measuring 53 acres north of Wujin High- New Zone of Zhangzhou City and 82 acres in Ming Hung town, Changzhou City.
Penang condominium
Yesterday, Mah Sing announced the acquisition of 3.38 acres of freehold land along Pykett Avenue off Jalan Burma in Georgetown, Penang, for RM38.65m or RM263 psf. The acquisition cost appears fair considering that it makes up only 14% of the RM280m estimated GDV. However, the pricing is on the higher end of the RM200- 300 psf range for transactions of prime condo land on the island. The land is near the Chinese Recreation Club and Penang Plaza along Burma Road as well as Wisma Persekutuan and TNB Building along Anson Road. There are three schools adjacent to the land – SMK Pykett Methodist, SMK Westland and SJKC Union. Mah Sing will
be developing upmarket condos measuring 1,400, 1,800 and 2,500 sq ft each and will be opening for registration of interest in 1Q2010. It is targeting to launch the condo in 2H2010.
We are positive about this acquisition as we believe that demand for prime residential property in Penang is robust. Mah Sing’s targeted launch price of RM550-650 psf, however, is not cheap and on par with newly launched seafront condos by E&O(EAST MK; Trading Buy) and IJM Land. Nonetheless, we believe demand for Mah Sing’s project will be good if it is marketed properly as there is little competition in the area since the project is surrounded mostly by high-end residential bungalows and low-rise condos. Also, as Mah Sing has started to establish its reputation on the island with its highly successful Southbay project, we believe it should do reasonably well with its maiden condo project.
China letter of intent
Meanwhile, Mah Sing has signed a letter of intent with Wujin District People’s Government to develop an 87-acre mixed development project in Wujin district, Changzhou, Jiangsu province in China. Mah Sing will establish a 51:49 joint venture with DanLong Realty (Beijing) Co Ltd, a reputable Beijing developer, to develop the land. Initial investment in the JV company by the partners will total US$80m. GDV of the project is US$620m. The JV company also has an option for two plots of land measuring 53 acres north of Wujin High-New Zone of Zhangzhou City at the south intersection of Wuman Road and Wuyi Road and 82 acres at the north intersection of Wunan Road and Wuyi Road, Ming Hung town, Wujin District, Changzhou City. Wujin
is located at the centre of the Yangtse delta, close to Shanghai, Suzhou, Najing and HangZhou. It was ranked 8th in the top 100 best cities and counties in mainland China while Changzhou was named by Forbes as the 9th best business city in China.
Despite the seemingly attractive deal, we are lukewarm about Mah Sing’s China project as we are wary of overseas projects by Malaysian developers in general, and China in particular. Property sector leader, SP Setia (SPSB MK; Trading Buy), also ventured into China recently but acknowledged that it would take the group two years to move up the learning curve. It is taking it slowly in China, moving one step at a time. Mah Sing’s project in China, like most of its projects anywhere, appears to be on the fast track and is targeted for launch sometime next year. Its share of investment in this project will amount to RM100m, which part explains the group’s recent private placement. Nonetheless, Mah Sing’s fine track record when it comes to execution
lends hope that it can succeed where others have not. Should the group taste success in China, the upside potential for the group in terms of earnings and share price would be tremendous.
Outlook
This acquisition of the Penang condo land brings Mah Sing’s total purchases in 2009 to six, with a combined cost of RM323m and GDV of RM2.2bn. The China land is still at the letter of intent stage. Its inclusion would boost substantially the group’s acquisition cost and GDV. However, there is a cost to its aggressive land banking strategy, a notable one being the dilutive impact of the unexpected 10% private placement. We are also disappointed that the final placement price is only RM1.55, 4% below the indicative price of RM1.62 when first announced and 16% below yesterday’s closing price of RM1.85. We view the private placement as unnecessary dilution given the group’s strong balance sheet and cash flows. Note that we have not yet factored in the China project into our earnings model as the letter of intent means that it is still at the preliminary stage.
Recommendation
Overall, we are positive about Mah Sing’s maiden venture into the condo market in Penang but are lukewarm about its foray into China. We are tweaking our 2009-10 EPS down by less than 1% while raising 2011 EPS by 4% as the Penang condo project should more than offset dilution from the lower placement price when the project contributes significantly in 2011. Our target price, however, is lowered from RM2.51 to RM2.34 as we widen the discount to our target market P/E of 15x from 10% to 20% to factor in the lower-than-expected placement price and emerging overseas risks. Nonetheless, we retain our BUY recommendation as valuations remain attractive and Mah Sing has a good track record when it comes to execution. Potential catalysts include 1) stronger-than-expected sales and 2) further newsflow on landbank acquisition. Note that our recommendation is trading oriented, in line with our trading buy call for the entire sector and all developers under coverage.
52-weeks Share Price Range (RM) RM1.50/RM2.09
Major Shareholders: %
Dato' Seri Leong Hoy Kum 35.8
PNB 28.2
Capital Group 6.2
By CIMB
Analyst: CIMB Research Team
No comments:
Post a Comment